This year is set to be a year when Malaysia fortifies its fiscal foundations to ensure the people’s wellbeing, as evidenced by the government taking serious steps to diversify its tax base to ensure stable and sustainable revenue streams.
Whether or not you’re supportive of the new taxes and policies that will be enforced in the coming months, this shift has become a strategic imperative as the country gradually steers away from a reliance on petroleum exports susceptible to global commodity-price fluctuations.
Let’s delve into the few significant tax policy changes set to unfold this year and their far-reaching implications for Malaysian businesses.
Low-value goods tax
Effective Jan 1, 2024, a low-value goods tax (LVGT) of 10% is imposed on low-value goods imported into Malaysia that are priced at RM500 or below, subject to certain exclusions. As LVGT is sales-reliant, it helps level the playing field and improves the competitiveness of local businesses, especially those previously overshadowed by their online counterparts.
Meanwhile, for affected traders, establishing effective communication and documentation with customers, online-marketplace operators and importers will be essential to avoid double taxation from sales tax which may occur initially at the point of sale and subsequently LVGT upon the importation of goods.
For that, it would be helpful to have clear guidance on the mechanism. Additionally, system configuration may be necessary to identify LVG and maintain accurate documentation.
Capital gains tax
Effective Jan 1, 2024, a capital gains tax (CGT) is imposed on gains made by companies, limited liability partnerships, trust bodies and cooperative societies, from disposal of shares in companies incorporated in Malaysia not listed on the stock exchange.
This includes shares under the new Section 15C (shares of a controlled company incorporated outside Malaysia which owns real property situated in Malaysia or shares of another controlled company, subject to meeting the 75% threshold conditions), and capital assets situated outside Malaysia, upon remittance into the country.
An initial two-month exemption was granted for the disposal of the unlisted shares in Malaysia that occur from Jan 1 to Feb 29, 2024.
To benefit from the two-month exemption granted, private groups in Malaysia must promptly evaluate their merger and acquisition plans and corporate exercises.
On that front, we hope that relevant guidelines will be made available soon to provide more clarity on the mechanism, as there are several aspects that warrant consideration when assessing taxable gains for CGT.
Service tax
The service tax (ST) is expanded to include logistics, brokerage, underwriting and karaoke services, with the tax rate being raised from 6% to 8% effective March 1, 2024 (excluding food and beverages, telecommunication services, parking and logistics services).
As ST is a final tax incurred by consumers with no claimable input tax credit, the potential cascading effect may translate into spikes in prices along the supply chain.
The effect is especially apparent in more complex supply chains. Businesses will either absorb higher operating costs or eventually transfer them onto their customers.
This means that businesses need to be conscious of the new ST rate implementation and consider the implications on customers, in terms of the timeline of the billing, payment and rendering of services.
High-value goods tax
Starting May 1, 2024, a high-value goods tax (HVGT) ranging from 5%-10% will be imposed on luxury goods such as jewellery and watches exceeding a certain price threshold, which has yet to be revealed by the government.
No doubt retailers are concerned that the HVGT may affect customer sentiment especially foreign tourists who visit Malaysia for shopping.
On this, the government has assured that foreign tourists will enjoy refunds upon leaving Malaysia. Nevertheless, affected businesses need to be vigilant of the list of affected items, reporting and refund mechanisms when the relevant legislation and guidelines are released.
E-Invoicing
Starting Aug 1, 2024, e-Invoicing will be mandatory for taxpayers with annual turnover exceeding RM100mil, with the phased implementation for all companies set to be fully completed by July 1, 2025.
This is a transformative force that will reshape the business-transaction landscape in Malaysia.
Depending on the level of integration with the e-Invoicing system, businesses will benefit from economic efficiencies that ripple across the business ecosystem through streamlined record keeping, faster payment cycles among other things.
Businesses ought to initiate a gap assessment while anticipating the release of the software development kit by the Inland Revenue Board.
A comprehensive assessment will enable businesses to examine their readiness in meeting the e-Invoicing requirements.
Once fully implemented, e-Invoicing is anticipated to bolster the government’s efforts in enhancing compliance and curbing revenue leakage from the shadow economy.
Global minimum tax
The global minimum tax (GMT) rate of 15% is set to be effective in Malaysia from Jan 1, 2025 onwards for multinational enterprises (MNEs) with a global income of at least 750mil. The timeframe will allow some lead time for relevant MNEs to get ready. As the saying goes, the unprepared will be the most disadvantaged.
It is pertinent to prepare the necessary resources and specialised skillset to address the implementation of Global Anti-Base Erosion or GloBE Rules.
It would be timely for MNEs to begin collaborating with tax professionals to perform data gap analysis, impact assessment and responses, and develop communication and action plans with customised project implementation roadmaps.
Governance and data automation enhancements should also be considered to ensure audit readiness in the long run.
Aside from the new qualitative and quantitative disclosures in the financial statements on Pillar Two exposure, existing tax incentive packages that will be impacted by the Pillar 2 implementation should also be explored and reviewed.
Driving an equitable tax system: a shared responsibility
How Malaysia translates its aspirations into economic reality in 2024 and beyond will be of great interest to the people. Effective implementation of these tax changes promises to be the engines of sustainable economic progress.
However, true success lies with efficient enforcement and transparent revenue utilisation. To achieve that, a collective effort between taxpayers, tax administrators, and tax professionals will be required.
Together, we can drive the transformation of our country’s tax ecosystem towards one that is just and equitable which benefits all stakeholders.
Soh Lian Seng is KPMG Malaysia’s head of tax. The views expressed here are the writer’s own.
